Can North American auto suppliers create value?

North America’s auto suppliers are struggling for survival, squeezed by rising costs, blistering competition, declining production volumes, and relentless downward pricing pressure from automakers themselves facing severe business conditions.
McKinsey research finds that over the next five years, North American suppliers could potentially create value across 60 to 70 percent of a vehicle’s content, in three product segments: those that provide opportunities for significant innovation; those that are consolidated, with high barriers to entry; or those that give agile competitors early-mover cost benefits.
Creating value in the fourth area, which represents 30 percent of a vehicle’s content, will be extraordinarily difficult. Consequently, North American suppliers should actively consider their exit options in these segments.
Our findings, which have strategic implications for suppliers and OEMs alike, show that North America’s auto suppliers must consolidate and restructure their portfolios to improve profitability.

Exhibit 1: North American auto suppliers have struggled to create value.
Exhibit 2: Value can be created in 70 percent of a vehicle’s content.
Interactive exhibit: McKinsey analyzed 115 component segments that North American auto suppliers look at when they make purchasing decisions for typical passenger cars and assessed the suppliers' ability to create value in individual product areas. This interactive exhibit examines four value categories that emerged from our research.